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Unformatted text preview: Econ 277A Winter 2011 Problem Set 2 Problem 1 Arne, Barack, and Christy are four regressions away from completing their doctoral disser tations, and they have four days in which to finish. If one of them spends h t hours running regressions on day t , her utility that day is given by u t = h t . The production function for regressions is r t = √ h t . Completing the dissertation provides no utility—it is merely a binding constraint! So expected utility is simply the appropriatelydiscounted sum of effort costs. Assume δ = 1 throughout. a) How many regressions does Arne, a TC with ˆ β = β = 1, run each day? b) What about Barack, who is naive about his presentbias ( ˆ β = 1, but β = 1 2 ? Also, on day one, how many regressions does he plan to run each day? c) What about Christy, who is like Barack, but sophisticated about her presentbias? Discuss your approach to working out your answer. Problem 2 Nina lives three periods. In period 0 she is born with $2 and can save any amount, s , of this wealth in an illiquid asset (a twoperiod CD) that yields (1 +...
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 Fall '09
 GROSSMAN
 Game Theory, Utility

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